Real Estate, Retirement and the IRA

Retirement Planning Meets Real Estate (And Really Hit it Off) You are never too young to start saving for retirement. On the other hand, only your specific life circumstances determine if you’re too old. Although earlier is best when it comes to retirement planning, later is still better than never. Whenever you choose to start, it is important to know your options and limitations.

It is difficult to find an employer that offers a consistent pension plan.  Those approaching retirement rely primarily on IRAs to assist in saving for retirement. However, most people never take control of their retirement accounts and passivity can be costly for your nest egg. The majority of IRA money in our country is invested in stocks, bonds and mutual funds. According to MSNMoney.com, about 97 percent of IRA money is dedicated to these traditional investments. That means only 3 percent of our IRA money is dedicated to alternative investments, such as real estate, that have the ability to produce higher returns.

The rules governing allowable investments by IRAs only exclude three classes of investments: collectibles (such as artwork, gems, antiques and most coins), life-insurance and S corporations. All other types of investments are permitted, which makes for seemingly endless investment options. One trend that is beginning to gain popularity is using IRA money to invest in real estate.

Investing in real estate through an IRA widens the range of alternative investments available for individuals planning their retirement. Introducing real estate into your retirement portfolio has obvious benefits. For one, it can act as a means to diversify your portfolio, which can help to hedge against the volatility in the stock market or government-backed investments. Also, for those who are experienced in real-estate investing, or those who seek help from a professional who is, real-estate investments have the potential to protect against principal loss. Real estate can also generate better-than-market-rate returns through income production and capital gains. With the help of a Registered Investment Advisor, your income and capital gains could also be stuffed back into your IRA either tax-deferred (as with a traditional IRA) or tax-free (as with a Roth IRA).

Arguably, the easiest way to incorporate real estate into your retirement plans is to have your IRA purchase the asset and you treat it strictly as an investment. This means you cannot use the property for personal reasons, which excludes the options of purchasing and frequenting a vacation home or purchasing property from relatives. There are no complex issues involved when you treat the asset only as an investment as long as your IRA pays cash for it. But, this is not a feasible option for everyone.

If you have to leverage a mortgage, things get a bit more complicated. For instance, you cannot personally guarantee a loan for your IRA. Also, your IRA will pay tax on something called Unrelated Debt Financed Income, which is the income that can be attributed to the leveraged portion of the loan. If you are not well-versed in real-estate investing, you can run into some major tax complications when trying to use your retirement accounts to purchase real estate. I highly recommend seeking the help of a professional for two specific reasons. First, a professional helps eliminate headaches and complexity. Second, he or she can help to ensure that your retirement account has the best chance to bloom and remain fruitful throughout your entire retirement.

To help simplify the complex process of introducing real-estate investments into your retirement plans, I have uploaded an e-book that you can download for free at www.ThePowellPerspective.com. Inside the “Real Estate Risk and Retirement Planning Pt. 1” e-book you will find:

– How to decide if real-estate investments are right for you right now

– Helpful guidance for introducing real-estate investments into your retirement plans

– How to navigate the different options you have when it comes to real-estate investing

– The importance of holding a diversified retirement portfolio

– How to use real-estate investments as a hedge against inflation 

I have compiled information from a variety of sources to create an e-book that can help readers take the unknown out of a complex topic. It is my hope with this two-part e-book, that readers will find the information they need to take control of their retirement planning and stop putting it off. Retirement can be filled with relaxation, travel and free time to complete a number of your life goals. There is no reason to be worried about your finances later on in life when you can easily take the right steps toward financial security today.

All My Best,

Thomas J. Powell

For the free eBook, please visit www.ThePowellPerspective.com 

Thomas J. Powell on FoxBusiness.com

Thank you for viewing my most recent interview on FoxBusiness.com.  I look forward to hearing your feedback. 

Sincerely,

Thomas

Thomas J. Powell – Trust, But Verify

Anyone who knows me also knows I am a devoted fan of Ronald Reagan.  I follow and practice  many of his adages and principles in my own life, particularly his statement “Trust But Verify.”  In our business of alternative investments primarily in real estate-secured assets, this statement is used on a daily basis.  We are certainly in the most unique financial and economic time we will see in our lives; because of that due diligence and risk analysis are more important than ever.  My team and I at my investment company ELP Capital, Inc. spend a great deal of time prior to releasing a new investment analyzing every potential aspect of a deal and the “what-ifs” associated with it.  While we have tremendous experience in the business of commercial real estate lending, we know enough to know that most of the “rules” of lending have changed, at least for the short run. 

However, one thing that is important to stress here is that the fundamentals remain the same.  No matter the economic climate, there are lending principles which have proven to be sound throughout many years and generations.   We continue to do our best to stay true to history’s lessons and to our professional and personal principles.  Trust But Verify is one of those fundamentals.  It not only works in business, but in our everyday dealings, whether with our businesses, our children, a product you are considering purchasing, or fill in the blank.  Of course, as I mentioned above, there are no guarantees in life and certainly not in investing, and all we can do is our best up front to create the scenario for a positive outcome for all involved parties.

Here it is appropriate place to mention one of my other favoriate Reaganisms, “I’m from the government and I’m here to help.” As he liked to say, he felt those were some of the most terrifying words in the English language.   I agree with his sentiments and consistently encourage those around me to question the government’s actions-Trust But Verify-just as we do in our business and as I recently did on my appearance on FoxBusiness.com.  As you go about your daily activities, I encourage you to have your own healthy dose of skepticism and ask Why? It’s one of the most simple, yet most effective questions we have in our arsenal.

As Lincoln said in the Gettysburg Address, our government is  “Of the People, By the People, and For the People.”  Let’s all remember who “The People” are.  They are us and it’s up to us to hold ourselves, our businesses and our government accountable.

All my best,

Thomas J. Powell

Thomas J. Powell – Are We Poised to Grow? Or Are We Being Punked?

My kids all like the TV show Punked, where actor Ashton Kutcher goes to unsuspecting famous people and tricks them into doing crazy and mostly embarrassing antics for the pleasure of the viewing audience, and of course at their expense.

As we continue to hear daily news which is much like watching a ping-pong game about the economy, I’m beginning to wonder if we are all being Punked.  Yesterday the news reported that Fed Chairman Bernanke said the US economy is poised to grow and could very well be starting its climb out of the basement and into the daylight.

On the one hand, I have trust in Bernanke.  More than being the Fed Chairman, he is a student of the Great Depression and I feel some comfort knowing that he is very well aware of the events during the 1930s that both led into the Depression and which kept the country in financial paralysis.

On the other hand, however, as I recently mentioned on FoxBusiness.com regarding our government and its decisions, I support what Ronald Reagan said:  “Trust but Verify.”  As much as I want to put my faith into our leaders, their words and actions, I having this perpetual feeling that the other shoe is still yet to drop.  That somewhere, Ashton Kutcher is waiting in the wings of the stock market, ready to step up to the closing bell one day and proudly tell a floor full of stunned traders that we have all been Punked. 

My team and I work every day in our business to verify statements like Bernanke’s yesterday, and I am choosing to believe at this point that he may very well be right.  We are beginning to see some hopeful signs in the market and are all keeping our fingers crossed that the country continues to tiptoe down this very tentative path.

I just hope, as I’m sure you do after reading this, not to see Ashton Kutcher anytime soon near Wall Street.

All my best,

Thomas J. Powell

Thomas J. Powell: It’s Time to Put Your Cash Back to Work!

I am very excited about a recent article I read in SmartMoney magazine about getting back into the ring with investing.  Currently it is estimated that $3.6 TRILLION is sitting on the sidelines in money market funds, just waiting….and waiting…and waiting.  What are we waiting for?   As I like to tell people,  economics is primarily a study in psychology, not finance.  The collective thought processes which occur as a result of the media, our neighbors, friends and colleagues drives far more of our actions than what we as individuals really think.  Ten years ago, we couldn’t go wrong with dot.coms, five years ago many used their homes as piggy bank, and now I speak with people on a regular basis who are terrified to do anything with their money except hide it away.

As the SmartMoney article says, the average money market fund is paying just 37 basis points.  Using the rule of 72 and compounding interest, at that rate it will take 144 years to double!  Seeing this fact may leave you wondering why so many have essentially put their money under the mattress.  I believe it is time to pull your money out, dust it off and get it back in the workforce.  You simply cannot create a solid financial future on 0.37%, no matter how you try to package it or plug in the numbers.

While we are most likely in for several more lean years, the answer in my opinion to getting your money back to work hinges on not only carefully scouring your portfolio, but also making sure it includes real estate.  Why?  It all comes down to inflation. 

1.  The threat for inflation is very real.  The spending spree our country is on is leading to many new spending programs and growing entitlements.  If we continue many experts are predicting the value of the US dollar will fall and a rise to 6% inflation or above will seriously continue to erode asset value.

2.  Real estate is a proven hedge against inflation.  There are examples going back literally hundreds of years which show time and time again that real estate tends to ride the inflationary trend.  Does it lose value through cycles?  Yes.  Does it go to zero?  Rarely and if so, there are unusual circumstances which cause the drop.

3.  Here are three things you can do today to check your portfolio for inflation risk.  Watch for holdings in areas which are sensitive to inflation effects.  Check your balance of stocks vs. bonds and in what companies you are holding both.  You may want to look at long term bonds and dividend-paying stocks.  And, finally, invest in real estate. 

I look forward to continuing to share information with you that I find of value, including this article.  Remember, if you are always waiting for the “right time” to invest, when will that time be?  Only you know the best answer for you but I am here as one of your valuable resources to call and hopefully earn your trust to put your money back to work.

To see the full article, go to http://www.smartmoney.com/investing/economy/put-your-cash-to-work/

I look forward to receiving your feedback and comments.

All my best,

Thomas J. Powell